Chevron’s recent announcement of its $53 billion all-stock acquisition of Hess Corp has sent ripples through the energy sector. This move not only escalates Chevron’s rivalry with Exxon Mobil but also signifies the company’s intent to expand its presence in U.S. shale and oil-rich Guyana. We delve into expert opinions and investor reactions to better understand the implications of this significant deal.
Royal Bank of Canada’s Perspective
The timing of this acquisition surprised some experts. Given that Exxon Mobil had previously withdrawn itself from large-scale M&A through its Pioneer deal, Chevron could have potentially waited. Nevertheless, this deal addresses concerns about Chevron’s portfolio concentration in the Permian basin and its lack of growth diversification. While the acquisition provides Chevron with a more diversified portfolio in the long term, it could exert short-term pressure on its shares.
MKP Advisors’ Take
Hess Corp has been a potential acquisition target for a while. John Hess, as a non-seller, was perceived as the primary reason for the delay in such a deal. However, his willingness to transition Hess to new ownership suggests a changing perspective. This move sparks conversations about large-scale super-majors returning to fossil fuel exposure instead of emphasizing renewable energy. But, ultimately, this is a topic for Chevron’s shareholders and management rather than a threat to the deal.
Peter McNally’s Observation
The recent flurry of acquisition activity by Chevron and Exxon Mobil harkens back to an era 25 years ago when “super majors” were being formed. This transformational period led to the oil industry’s massive companies we see today. Unlike that era when consolidation aimed to reduce costs, the companies acquired today, such as Hess and Pioneer Natural Resources, have more specialized expertise in specific resource development.
Viktor Katona’s Insight
The transaction between Chevron and Hess is expected to result in a unique coexistence in Guyana, with both companies becoming major players in a project while competing against each other. Chevron’s focus on oil and Hess’s similar oil-focused portfolio may blend well, creating a strategic partnership.
Robin Helander’s Prediction
North America-based M&A in the energy sector has surged to record levels, with the Chevron-Hess merger poised to significantly impact the shale oil industry. Chevron is set to become the second-largest shale producer in the United States, which is likely to trigger further M&A and industry consolidation in North America’s shale sector.
TD Cowen Analysts’ Reaction
While the value of the deal appears fair, the market didn’t signal an imminent need for Hess to be sold. Interestingly, many investors were looking to shift funds from the recently sold Pioneer Natural Resources to Hess as a large-cap, growth-oriented alternative. The minimal operational overlap in this deal outside of the Gulf of Mexico should face minimal regulatory obstacles.
UBS Analysts’ Perspective
Sector consolidation is accelerating and driving positive performance, with more transactions expected as potential sellers receive premiums of 5-15% compared to no premiums in 2020-21. All-stock transactions maintain strong balance sheets while enhancing shareholder returns.
Mark van Baal’s Climate Concerns
Mark van Baal highlights the implications of this deal on climate change efforts. He believes Chevron’s acquisition reflects a bet on the failure of the Paris Climate Agreement to limit climate warming. This raises questions about the responsibility of big oil companies in the fight against climate change and emphasizes the importance of shareholders in driving change.
Truist Securities Analysts’ Surprised Perspective
The deal surprised experts as Chevron was already operating Hess’s largest asset in Guyana, a significant part of the company’s total value. Furthermore, the expectation was that Chevron would acquire a company with more contiguous assets. The $10 billion and potentially more divestitures, along with reduced combined activity, could impact smaller exploration and production companies, as well as midstream and oilfield service providers.
Conclusion
Chevron’s acquisition of Hess Corp for $53 billion has significant implications for the energy industry and raises questions about the future direction of large oil companies. While experts and investors have varying perspectives, one thing is certain: the deal will reshape the landscape of the oil and gas sector, setting the stage for further mergers and consolidation in the industry.